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UK Interest Rates Set to Reach Pre-Covid Level This Week


Update: UK interest rates have officially risen to 0.75% as of Thursday 17 March 2022 – its highest level since March 2020. 

Since the start of 2022, UK interest rates have been steadily rising. After dropping to a record low of 0.1% at the start of the pandemic, the interest rate rose for the first time in two years to 0.25% at the end of 2021. This was swiftly followed by a further increase to 0.5% in February.  

While the Bank of England previously committed to gradual rises, the interest rate is expected to see yet another increase by the end of the week. 

According to economists, this growth is expected to put UK interest rates back at their pre-Covid level. The expected rise will push interest rates up to 0.75% – the highest level we will have seen since March 2020. 

The low interest rates throughout the pandemic have been a key incentive for investors over the past two years, with the opportunity to access more attractive mortgages. 

While the next rise in interest rates will be the second increase in just over a month, buyer sentiment remains strong. In February alone, the average UK property increased by £370 per week, putting annual capital gains at its highest level in more than 40 years

What does this mean for buy-to-let investors?

For those on fixed mortgages, these rising interest rates won’t affect their buy-to-let property, but for those with a variable mortgage, incremental changes could be noticeable. That said, statistics have suggested that these increases will be less than £20 per £100,000, which shouldn’t impact the overall performance of a property portfolio. 

However, for those who are uncertain of rising interest rates it’s crucial to consider these in conjunction with the wider market. For example, property prices remain on an upward trajectory and show no sign of slowing down, meaning your investment property will probably continue to build equity either way. 

Not only will you still be benefitting from long-term capital growth, average UK rents are also increasing. According to Zoopla, the average UK rent is almost reaching £1,000, allowing for even more short-term returns. This means that for those on a variable rate mortgage, the opportunities for short- and long-term returns more than compensate for these slight rises. 

If you’ve invested in property, you’ve likely been told that this asset is usually most lucrative on a long-term basis. While buy-to-let property can offer competitive returns in the short-term, staying in the market for as long as possible – even if that means weathering some storms – will usually pay off. 

More specifically, the latest report by JLL highlights the opportunities for capital growth in the next five years. Through a combination of strong demand and a chronic undersupply of property, there is 20% growth forecasted by 2026, with specific cities, such as Birmingham, leading the way for capital appreciation. 

These increasingly positive outlooks are forecasting further increases in the property market, despite the continued increases in interest rates. According to JLL’s forecast, the UK interest rate is on track to reach 1.2% by 2026, which will have been a contributing factor in the PLC’s expectations. 

While the increases in the UK’s bank rate may seem surprising after two years of favourable lending environments, it’s crucial to consider the wider market. Property is resilient and despite the forecasted growth in interest rates, prices remain on an upward trajectory. With 20% price increases expected by 2026, investors should remain confident in their buy-to-let property.

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